Regarded as a major boost for Chinaâ€™s campaign to globalise its currency, China and Japan have agreed to start direct trading in their local currencies from later this week.

The move between world's second largest economy China and third largest economy Japan will bring the yuan one step closer to becoming a truly global currency, official media here said.

Japan ranks fourth among China's trading partners after the European Union, the US and the Association of Southeast Asian Nations, while China has been Japan's largest trading partner for the past three consecutive years. Bilateral trade rose 14.3 per cent year-on-year to reach USD 344.9 billion last year.

The trading marks the first time for China to allow a major currency other than the US dollar to be traded directly against the Chinese currency RMB, or the yuan.

As part of the efforts between China and Japan to strengthen cooperation in developing the financial market, the move serves as an important means of promoting direct yuan-yen trading, the People's Bank of China said in a statement.

Analysts see this move as a broader strategy by China to reduce dependence on US dollar as well as internationalise its currency. China reportedly chose Japanese Yen because of the large amount of trade between the two countries stretching over USD 400 billion. It also expected to help them to deal with currency uncertainty due to EU debt crisis.

According to the announcement Yuan-yen trading will start on China's inter-bank foreign exchange market on Friday.

The central parity rate of the yuan against the yen will be based on the average price of offers made by registered dealers before the opening of the market each business day, state run Xinhua reported.

With the greenback as an intermediate currency, the yuan is currently allowed to be traded against eight other currencies on the market, including the euro, British pound, Hong Kong dollar, Japanese yen, Malaysian ringgit, Russian ruble, Australian dollar and Canadian dollar.

China and India reached an agreement to permit USD one billion under external commercial borrowing by private sector last year.

The new move is expected to boost trade between China and Japan the two leading economies in the wake of the eurozone's economic downturns, and more importantly, promote greater internationalisation of the yuan, analysts said. "A directly-formed yuan-yen exchange rate will help enterprises mitigate risks brought by a fluctuating US dollar and reduce exchange losses for Chinese and Japanese companies," Ding Zhijie, dean of the School of Banking and Finance with the University of International Business and Economics said.

you can buy whatever is made in China with RMB directly....
and CHina is already the biggest exporter in the world.....

It already gives enough credit to the collection of RMB outside CHina..

If you can buy whatever is made in Japan indirectly with RMB ,then the credit of RMB increases much.

BTW, once upon a time, credit of USD is based on its purchase power of USA's domestic assets and products, because USA was largest exporter and could provide soo many attractive asset and products to people outside USA.
but now, USA's export has lag behind CHina and Germany and can not provide more attractive asset and products than CHIna and Germany.
the credit of USA is more based on its purchase power of non-USA assets and products ,such as oil in MD.

you can buy whatever is made in China with RMB directly....
and CHina is already the biggest exporter in the world.....

It already gives enough credit to the collection of RMB outside CHina..

If you can buy whatever is made in Japan indirectly with RMB ,then the credit of RMB increases much.

BTW, once upon a time, credit of USD is based on its purchase power of USA's domestic assets and products, because USA was largest exporter and could provide soo many attractive asset and products to people outside USA.
but now, USA's export has lag behind CHina and Germany and can not provide more attractive asset and products than CHIna and Germany.
the credit of USA is more based on its purchase power of non-USA assets and products ,such as oil in MD.

QE1, QE2, .... , QEx.
Japan and Korean, though as US close allies, have no choice but cooperate with China on defending financial risk.
The only way for US to recover in a short time is transferring its loss to other countries.
EU has already suffered a little, but the scale is not big enough. And US has no will to push EU too much considering the world balance.
Next target might be either little developed countries in Asia or Southern Ecnomics like BRICS.
Only these countries are fat enough, by being hunted one or two, to compensate the dark hole.
It seems that Japan & Korean have already smelled some kind of dangers as we did, otherwise it's ridiculous to imagine how the three who dislikes each other in their souls will work together under a triangle frame.

It does not matter. The question is will the OPEC cartel accept Yuan? No chance. They are not morons to accept another piece of paper for their precious cargo. And even if they are accepting paper, why not keep accepting the US paper, atleast you get the protection of the strongest military in the world.

It does not matter. The question is will the OPEC cartel accept Yuan? No chance. They are not morons to accept another piece of paper for their precious cargo. And even if they are accepting paper, why not keep accepting the US paper, atleast you get the protection of the strongest military in the world.

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This is the time USA to start putting tariffs on Chinese and Japanese
one low end junk producer one high end producer both will lose their
markets in USA.

It does not matter. The question is will the OPEC cartel accept Yuan? No chance. They are not morons to accept another piece of paper for their precious cargo. And even if they are accepting paper, why not keep accepting the US paper, atleast you get the protection of the strongest military in the world.

Click to expand...

The reason everybody accepted US dollar now or UK pound in 19 century is:
1. They were the biggist exporters in their peak time. So, you can always use that paper to buy something from them;
2. Either of them was or is the strongest military power. So, there is no other foreign power can turn this paper into rabbish.

Now, the condition 1 is almost gone for US dollar, only military power is still there. But the fact is that this overwhelming mililtary power is built on the huge amount of debts. So, one day americans have to face a choice: either save the money to keep their living standard or keep the military power while leave most american's lives in miserable status.

This is the time USA to start putting tariffs on Chinese and Japanese
one low end junk producer one high end producer both will lose their
markets in USA.

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Surprisily, I have been heard such kind of threat from indian's mouth for 10 years but american hasn't really started it (only on individual items, not full scale).
Why? because sino-us economy is integrated so deeply, it is quite hard to hurt other side without hurting youselves.

The low end junk producer you talking about are the products that amercians need and no other can offer with such a low rate.

The reason everybody accepted US dollar now or UK pound in 19 century is:
1. They were the biggist exporters in their peak time. So, you can always use that paper to buy something from them;
2. Either of them was or is the strongest military power. So, there is no other foreign power can turn this paper into rabbish.

Now, the condition 1 is almost gone for US dollar, only military power is still there. But the fact is that this overwhelming mililtary power is built on the huge amount of debts. So, one day americans have to face a choice: either save the money to keep their living standard or keep the military power while leave most american's lives in miserable status.

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I agree with you partly. I do agree that US has got here due to its ability to print its and global currency. Hence it has a strong military.

Both Britain and America imposed their currency on the world as it at the initial stage was backed by GOLD.

RMB is not backed by gold and will never be. That is one thing that you need to understand.

Hence RMB will never be a global currency. As long as you are going to get gold in exchange for the currency the currency has no chance of becoming a global currency.

Euro on the other hand has segregated the 3 functions of money into 2 camps - Euro is acting as a unit of account and a medium of exchange. It has kept the store of value function reserved for gold.

That gives a currency credibility in the eyes of the world.

And hence the next global currency will never give any country any advantage like USD gave USA.

Euro has separated itself from the nation state - no national government can print Euro except the ECB.

EURO will be the next currency to trade in oil and hence it will be the next reserve currency in the world.